The Law

Legal Spotlight

A look at the latest legal cases impacting the industry.
By: | March 1, 2016 • 4 min read

Four Loko Makers Denied Coverage

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The makers of Four Loko alcoholic beverages were sued by families of individuals who died after ingesting the high-alcohol beverages in accidents or by acute alcohol poisoning.

Phusion, the manufacturer of the drinks, was insured by Selective Insurance Co. of South Carolina, whose policy had a liquor liability exclusion.

In 2013, Phusion filed a complaint against Selective in the Circuit Court of Cook County, Ill., saying the insurer had a duty to defend and indemnify it. Selective declined, citing the exclusion, and filed a motion to dismiss the complaint.

032016_legal_spotlight_drinks_400pxIn its lawsuit, Phusion argued the underlying lawsuits were not excluded because the allegations “were not [solely] based on liquor liability, but were based on ‘stimulant liability.’ ” Four Loko beverages include caffeine, guarana and taurine, it said, arguing that the stimulants “operated to desensitize the consumers of Four Loko to the symptoms of intoxication and caused them to act recklessly.”

On Dec. 16, 2014, the circuit court granted Selective’s motion to dismiss. It ruled the “plain language of the liquor liability exclusion precluded coverage.”

That decision was upheld on Dec. 18, 2015, on appeal by Phusion to the 5th District Illinois Appellate Court. The appeals court agreed with a previous U.S. 7th Circuit Court of Appeals ruling in another case that held that Phusion’s arguments were an effort to “disguise the role that intoxication allegedly played in the underlying cases.”

Scorecard: Selective does not have to defend or indemnify Phusion.

Takeaway: For the insured to succeed, it would have had to prove that the allegations were “divorced from the serving of alcohol.”

Court: Hailstorm Damage Needs Proof

On June 21, 2011, Vincent and Peggy Stagliano submitted a claim to the Cincinnati Insurance Co. and the Cincinnati Casualty Co. for damage from a May 24, 2011 hailstorm on one of 48 properties in Dallas that were insured.

That claim was paid, but claims later submitted by the pair claiming damage at other properties from the same hailstorm were denied. The Staglianos sued the insurers claiming breach of contract, among other allegations.

The insurance companies argued there was no evidence that the damage was caused by a hailstorm within the policy period. The insurers’ property claims manager stated the damage was from multiple storms, and could have occurred subsequent to policy expiration.

The district court concluded that the Staglianos’ expert witness, who said the damage occurred during the policy period, was not reliable. It dismissed the case.

The U.S. 5th Circuit Court of Appeals agreed on Dec. 11, 2015. Texas law, it said, requires clear proof that claimed losses occur within the policy period.

Scorecard: The insurance companies do not need to pay the claims.

Takeaway: The insured has the burden to offer proof that the claimed losses occurred during the policy period.

‘Hot Yoga’ Founder Gets Defense

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In a lawsuit filed on June 13, 2013 in the U.S. District Court for the Central District of California, lawyer Minakshi Jafa-Bodden said she was forced to resign on March 1, 2013 to stop her investigations into a student’s rape allegation against Bikram Choudhury, the founder of “hot yoga.”

She also accused Choudhury of making offensive sexual gestures and leering at female staffers, among other allegations.

Choudhury sought defense and indemnification from Nationwide Insurance Company, which provided a directors and officers policy to USA Yoga, an organization run by Choudhury’s wife; and from Philadelphia Indemnity Insurance Co., which issued a commercial general liability policy to Choudhury and Bikram’s Yoga College of India.

Both insurers declined to provide defense or indemnification.

032016_legal_spotlight_yoga_400pxIn a Dec. 9, 2015 ruling, the court decided that Philadelphia had a duty to defend. A day earlier, it ruled Nationwide did not.

The Philadelphia CGL policy covered personal and advertising injury that included “publication, in any manner, of material that slanders or libels a person or … disparages a person’s or organization’s goods, products or services.”

Jafa-Bodden’s allegations that Choudhury accused her of incompetence and engaged in improper and unethical sexual conduct fall within that coverage, the court ruled.

It ruled that an employment-related-practices exclusion did not apply because evidence indicated Jafa-Bodden was employed by the Indian law firm of Fox Mandal, which dispatched her to work for Choudhury, instructed him on her compensation, and continued to advise her on actions related to Choudhury’s legal affairs.

Since there was a dispute about her employment and thus, a potential for coverage, Philadelphia had a duty to defend, the court ruled.

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Nationwide’s policy covered USA Yoga employees and volunteers for acts “in the discharge of their duties solely in [that] capacity.” The court ruled that Choudhury denied being an employee and other evidence concurred.

While Choudhury volunteered at competitions put on by USA Yoga, there is no evidence that Jafa-Bodden was ever at any of those events. In addition, his appearances were also on behalf of other organizations, so he was not acting “solely” as a volunteer for USA Yoga, and was not entitled to a defense from Nationwide.

Scorecard: Philadelphia Indemnity Insurance Co. must defend Bikram Choudhury in the lawsuit.

Takeaway: An insurer may rely on an exclusion to deny coverage only if it provides conclusive evidence that the exclusion applies.

Anne Freedman is managing editor of Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

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That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

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Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]